Outside board memberships of CEOs: Expertise or entrenchment?

We investigate whether outside board memberships of CEOs signal expertise or entrenchment. The analysis is based on panel data of the largest German companies covering the period from 1996 to 2008. Supporting the entrenchment hypothesis, our analysis reveals that firms having a CEO with one or more outside mandates suffer from significantly weaker firm performance compared with firms having a CEO without any outside board mandates. Moreover, disciplinary CEO turnovers become less likely and turnover-performance sensitivity declines with rising board memberships of the top manager. We conclude that outside mandates enhance managerial power at the expense of the home firm's shareholders.